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A regulatory framework for gas quality treatment
facilities: recap and update
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GB regulatory framework
DTI• Regulatory authority
for offshore
• Licensing for offshore exploration
• Liaise with HSE on G(S)MR
HSE• Safety regulatory
authority – all GB gas activities
• Sets G(S)MR limits
•Sets & monitors compliance with safety
case requirements
Ofgem• Regulatory authority for GB
gas market
• Sets and monitors compliance with regulatory
framework
Ofgem to work together with HSE and DTI on any options developed
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Ofgem - work so far
Ofgem Workshop in September 06• Gas Quality is a material issue
Ofgem led two workstreams (Sep-Dec 2006)• Scenario development workstream– considered the extent of issue• Economic Regulation workstream – considered possible regulatory
framework to support construction of a gas processing facility• Conclusions document published 30 January
Work in Europe• Gas interoperability• ERGEG Taskforce
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What is the extent of the issue?
Future Source and spec of gas – Highly Uncertain…
• More continental LNG terminals ~ avail of import for GB Mkt• Norwegian supplies delivered; high prices prompt UKCS dev
• Gas supplies diverted to Continent ~ increase GB demand • High gas prices lead to increase development of UKCS
• All import facilities and UKCS flow to full capacity ~realistic?
• High imports flows to UK lead to exports to continent • Depressed GB prices; limited dev of UKCS
• 2009/10 – earliest period to consider dev. scenarios• 2013/14 – uncertainty regarding supply/demand balance• Bacton most suitable terminal; upper wobbe focus
Parameters Set
Transit UK
Global LNG
Equilibrium
Design Limits
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Economic Regulation – What was considered
Unregulated approach
• NGG builds facility
• Investment potentially included in RAB subject to user commitment meeting 100% NPV
• Costs recovered through user charges
Pure regulated approach
User commit approach
Not favoured due to concerns over timeliness of investment.
Favoured but with scope to allow NGG to add capacity above the level of user commitment at its own risk (i.e. not automatically included in the RAB)
Not favoured as risk of asset stranding would be smeared across all gas customers.
• No regulation of facility
• Pure commercial incentives apply
• NGG builds facility
• Investment included in the RAB
• Costs smeared across all gas customers
NOW FURTHER DEVELOPING THIS REGULATORY MODEL
Economic regulation workstream considered three broad approaches
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Proposed regulatory approach – summaryThird party approaches NG to conduct feasibility
studyNGG refuses Possible licence route
of appeal to Auth
NG offers terms and conditions for feasibility study
Third party refuses
Third party accepts
NG invests in capacity if bids cover 100% of facility cost
NG undertakes study and asks third party whether to proceed to auction based on
the study
Third party accepts
Third party rejects Third party pays for study
NG offers service to market through auction
NG can invest in additional capacity
NG earns a regulated rate of return
NG can earn higher or lower return
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Next consultation document (May)
• Flesh out main issues in the allocation of risks among parties– e.g. competition impacts, balancing risks to consumers, etc.
• Present initial views on how risks might be allocated & the associated regulatory framework– Taking into account submissions to Workstream Conclusions
• Industry feedback key– Framework to rely on strong user signals
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Next consultation doc published
31 May
Draft Proposalspublished
late July/early Aug
Apr
Jun Jul Aug SepMay
LICENCE AMENDMENTS
NGG DEVELOPS UNC MOD PROPOSALS
NGG First Workshop
23 Apr Panel Recommendation
Sep
Ofgem decision
Oct
Feasibility study potentially being conducted
Oct
Final proposalsearly Oct
Responses due
early Sep
Responses due
early July
Workstream completes dev
July
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